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Optimize Your Business Loan With Accounts Receivable Financing

By Expert Author: Raymond Dluhy

By Nick Bentley
Accounts Receivable Financing is a type of asset-financing arrangement where the collateral in a financing agreement is being used as its receivables, that is money owed by customers. The amount a company gets is equal to a reduced value of the receivables which was announced. How old the receivables are can greatly affect the amount a company will get. This means, the older the receivables, the less amount the company will have. This really is also referred to as factoring.

In addition, AR factoring is helpful in releasing capital that is stuck in accounts receivable. It is also responsible for transferring the default risk associated with the accounts receivable to the financing company; The act of transferring the risk can help the company by making use of financing, will then shift focus to current business activities instead of collecting receivables.

There are three parties directly involved: The one marketing the receivable, the debtor as well as the factor. The receivable is the generated financial asset about the debtor's liability to make a payment owed to the seller, such as for sold goods or perhaps labor performed. One or more of the receivable invoices are then sold by the seller at a discounted rate to the 3rd party that is a specialized financial institution (aka the factor) that is more often that not, ahead of time factoring to acquire more cash. What we call advance factoring, is the factor that offers financing to the seller or business owner in a money advance form that is usually 70-85% of the cost of the purchases, with the buy price's balance paid, commission that is the net of the discount fee for the factor and other charges that is collected from the debtor or perhaps customer.

The sale of the receivables basically transfers its ownership to the factoring loans, therefore, the factor obtains all of the rights linked to the receivables. Hence, the factor gains the right to receive payments made by the debtor for the amount of the invoice. And, in non-recourse factoring, it should bear the loss if the debtor won't be able to pay the invoice amount with just the reason that the debtor is financially unable. Most of the time, the sale of the receivable is notified to the account debtor, while the factor is the one that bills the debtor and makes all collections; however, non-notification factoring also happens, where the seller collects the accounts that are sold to the factor, acting as a great agent of the factor.

With the lending guidelines being tightened down by the banks, business owners need access to working capital to grow their business. An option like accounts receivable financing can help business owners along the way.

To find out more you can contact Business Credit Ally by going to http://businesscreditally.com/accounts-receivable-financing/ or perhaps contacting them directly at 855 249 2050.

Nick Bentley is the executive director of Business Credit Ally. Thousands of business owners have come to Business Credit Ally in an effort to reach their business financing goals. The goal of BCA is two fold: Put business owners into a position to where they can access capital immediately, and have the ability to remove their personal liability from their business risks. Due to the volume of business owners that come through BCA's lenders, they are able to negotiate wholesale rates for their business owners. To find out more you can go to http://businesscreditally.com/accounts-receivable-financing/

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